20x3 Change Problem 5-59 (Horngren 9th edition) Rosenberg Company Balance Sheets as of December 31 (in Millions) 20X4 Assets Cash $ 5 Accounts receivable 47 Inventory 70 Prepaid general expenses Plant assets, net 202 $ 328 $ 20 33 50 3 150 $ 256 $(15) 14 20 1 52 $ 72 4 $ 60 2 Liabilities and shareholders' equity Accounts payable for merchandise Accrued tax payable Long-term debt Capital stock Retained earnings $ 14 1 50 $ 74 3 50 100 101 $ 328 100 94 $ 256 7 $ 72 Rosenberg Company Statement of Income and Retained Earnings for the Year Ended December 31, 20X4 (in Millions) Sales $275 Less cost of goods sold Inventory, December 31, 20x3 $ 50 Purchases 185 Cost of goods available for sale $235 Inventory, December 31, 20X4 70 165 Gross profit $110 Less other expenses General expense $ 51 Depreciation 40 Taxes 10 101 Net income $ 9 Dividends 2 Net income of the period retained $7 Retained earnings, December 31, 20x3 94 Retained earnings, December 31, 20X4 $101 On December 30, 20X4, Rosenberg paid $98 million in cash to acquire a new plant to expand operations. This was partly financed by an issue of long-term debt for $50 million in cash. Plant assets were sold for their book value of $6 million during 20X4. Because net income was $9 million, the highest in the company's history, Jacob Rosenberg, the chief executive officer, was distressed by the company's extremely low cash balance. 1. Prepare a statement of cash flows for 20x4 using the direct method for reporting cash flows from operating activities. 2. Prepare a schedule that reconciles net income to net cash provided by operating activities. 3. What is revealed by the statement of cash flows? Does it help you reduce Mr. Rosenberg's distress? Why? Briefly explain to Mr. Rosenberg why cash has decreased even though net income was $9 million